Sec. 298. (2) To acquire personal property

(1) In general.

THE NORTHWESTERN UNION PACKET COMPANY v. SHAW.1 1875. IN THE SUPREME COURT OF WISCONSIN. 37 Wis. Rep. 655-662.

[Appeal by plaintiff from judgment in a suit to recover $1,000 paid upon a contract and damages for its breach. The packet company was organized in 1870, and from that time had been engaged in the business of a common carrier upon the Mississippi, and also in buying, selling and dealing in wheat, grain and produce generally; it contracted to purchase 4,000 bushels of wheat from Shaw and paid him $1,000 on account, the wheat to be delivered at a certain time and place, but Shaw failed to deliver as agreed. The corporate charter provided for owning and controlling vessels of various kinds for transportation on the Mississippi river, etc., to own warehouses, depots, etc., necessary for freighting, storing and forwarding property and persons, with power to sell any of its property of every description, and to do any and all acts and things necessary to an economical and successful prosecution of said business, to borrow money for all its purposes, to contract with any person in reference to the storing, forwarding or freighting of any kind of property, or "to any and all business incidental to, or arising from, the transportation of persons and property."] LYON, J. The question to be determined is, whether the plaintiff can lawfully buy and sell the produce of the country in the same manner and to the same extent that a natural person may.

We think this question must be answered in the negative. There is no necessary connection between the business of a common carrier and that of buying and selling the commodities which the carrier transports. Neither is the latter business necessarily or usually dependent upon the former. The two are as essentially distinct as the business of the carrier and that of the producer. It will scarcely be claimed that the plaintiff is authorized, under its articles of incorporation, to purchase large tracts of land on which to raise grain and other produce to be stored in its warehouses and shipped over its lines. If it may not do this, it is not perceived on what principle it may purchase the commodities instead of raising them. We think the principle is the same in both cases. Moreover, in view of the fact that the transportation of the products of the country is mainly controlled by powerful corporations representing immense aggrega tions of capital, there are reasons, if not of public policy, certainly reasons which should have much weight with the legislature, for confining common carriers to their legitimate business as carriers. At least no forced construction of their charters should be sanctioned to enable them to become producers or purchasers of such products. 1 Statement abridged, part of the opinion omitted.

By confining them to the proper business of common carriers, the temptation to make unjust discriminations in the transportation of their own property to the manifest injury and oppression of persons having like property for transportation, can only be avoided. Hence, while it is conceded that the legislature may confer upon a corporation common carrier the right of a natural person to buy and sell the commodities which it transports, it must be held that until so conferred the right does not exist.

We conclude that the contract set forth in the pleadings as to the plaintiff, is ultra vires, and that no claim for damages resulting from a breach thereof can be successfully asserted by either party. This disposes of the counter-claim of the defendant, and of all claims of the plaintiff except the claim to recover the $1,000 paid on account of the attempted purchase of the wheat.

[After holding that the $1,000 might be recovered in an action for money had and received, and that the complaint stated facts justifying this:]

Reversed and remanded.

Note. Personal property: Such personal property, but such only both as to kind and amount, as is reasonably necessary for the corporate purposes, may be lawfully acquired: 1858, Pearce v. R. Co., 21 How. (62 U. S.) 441; 1860, Downing v. Road Co., 40 N. H. 230; 1875, Northwestern Packet Co. v. Shaw, 37 Wis. 655; 1876, Farmers', etc., Bank v. Baldwin, 23 Minn. 198, 23 Am. Rep. 683; 1877, Morgan v. Donovan, 58 Ala. 241; 1877, Franklin Co. v. Lewiston Sav. Inst., 68 Maine 43, 28 Am. Rep. 9; 1884, Central R. Co. v. Smith, 76 Ala. 572, 52 Am. Rep. 353; 1885, Day v. Buggy Co., 57 Mich. 146, 58 Am. Rep. 352; 1888, Chewackla Lime-Works v. Dismukes, 87 Ala. 344; 1890, Jemison v. Citizens' Sav. Bank, 122 N. Y. 135, 19 Am. St. Rep. 482; 1895, Bosshardt & W. Co. v. Crescent Oil Co., 171 Pa. St. 109; 1897, Farwell v. Wolf, 96 Wis. 10, 65 Am. St. Rep. 22, 37 L. R. A. 138; 1897, Mahoney v. Butte Hardware Co., 19 Mont. 377; 1897, Malone v. Lancaster Gas L., etc., Co., 182 Pa. St. 309; 1899, Central Ohio Nat'l Gas, etc., Co. v. Cap. City Dairy Co., 60 Ohio St. 96, 53 N. E. Rep. 711; 1899, State v. Debenture G. & L. Co., 51 La. Ann. 1874, 26 So. Rep. 600; 1899, Herring v. Ruskin Co-op Assn., - Tenn. Ch. App. 19 52 S. W. Rep. 327.

There, however, is no limit upon the amount of personal property that a corporation may acquire or hold arising from the profits of carrying on properly its legitimate business.

Sec. 299. (2) Power to acquire its own shares.

(1) The English rule.

IN RE DRONFIELD SILKSTONE COAL COMPANY.1

1880. IN THE HIGH COURT OF JUSTICE, CHANCERY DIVISION. L. R. 17 Chancery Division 76-97.

JESSEL, M. R. The memorandum of association of a limited colliery company gave the company power to do all things which it should consider conducive to the attainment of its objects, but did not in terms

'Only the opinion of the master of the rolls is given. The statement of facts is that given in the syllabus to the case.

63-WIL. CAS.

give any power to purchase its own shares. The tenth clause of the articles empowered the directors to purchase for the company any shares in the company, and directed that the shares so purchased should be dealt with as if they had never been issued, and that any profit arising on the reissuing or subsequent sale of such shares should be deemed profits of the year in which they were reissued or sold. In 1872, disputes having arisen as to the conduct of the business, the directors agreed with W., the largest shareholder, who was also one of the directors, to purchase for the company his shares, and also his interest as landlord of the mines worked by the company. This ar rangement was confirmed by an extraordinary general meeting of the company, and was carried into effect by an assignment of his interest in the mines to the company for a specific sum, and by a transfer to the company of his shares for another specific sum. The company was entered in the share register as holder of these shares, and in all the subsequent returns to the registrar of joint stock companies the company was entered as such holder. The company for some time was prosperous, but afterwards fell into difficulties, and in 1879 an order was made for winding it up.

I now come to the point as to the surrender of shares—a point upon which I feel much more difficulty. It is not for me to say what the limits of surrender are which are allowable by the act. As I read this same judgment of Lord Justice James,' certain surrenders are allowable.

I can imagine one where the shares would be liable to forfeiture, and it is the shortest way to surrender them; then the same result would follow. But I am by no means prepared to say that there is a right under the term "surrender" to buy up the shares, and to have them surrendered to the company as on an ordinary purchase for money. That, I think, is clearly beyond the limit; but it is not nec essary for me to say what is exactly within the limit, because each case as it arises must be decided on its own merits. I can well imagine that certain cases are clearly within the limit, and ought not to be treated as a diminution of capital, and that other cases are clearly beyond the limit-such as the cases I have put of an ordinary purchase or ordinary traffic in shares, although the term "surrender" may be employed instead of the transaction taking the form it does here, of an actual transfer to the company.

Having dealt with the case so far, let us see what the twelfth sec tion of the companies act, 1862, must, as I think, mean. The suggestion made on the part of Mr. Ward is this, that all the act of parliament means is that the company must not alter the terms of the memorandum as to the nominal amount of the capital. It would be a very singular result if that were so, because it would come to thisthe company may destroy the whole of its real capital without altering its nominal amount. I will put the case in this way: The company has a million of capital in 10 shares, and has £100,000 paid upon the shares, leaving £900,000 remaining to be paid; there is a power 1 Hope v. International Finan. Soc., 4 Ch. D. 327, 336.

1

to accept a surrender of shares; the company resolve at a general meeting to retain one share for each of the seven directors, and to accept a surrender of all the other shares. I am putting an extreme case to try the question. According to the argument of Mr. Ward, that is perfectly valid; so that the result is that the primary capital of the company is reduced from £900,000, remaining to be called up, to £70, if there are seven directors. That is an extreme case, no doubt, but it shows to what an absurdity you would reduce the provisions of the act of parliament if that were allowed. It can not be said that the conditions of the memorandum mean that the company may in effect destroy the nominal capital; that it can not so mean is, I think, clear from the words of the section. The company may increase its capital by the issue of new shares to such an amount as it thinks expedient, or it may consolidate and divide its capital to a larger amount than the existing shares, or it may convert the paid-up shares into stock. If the section were only to apply to nominal capital, what is the meaning of the power for the company "to convert its paid-up shares into stock"? What the section means is that the company shall not convert the unpaid-up shares into stock. That implies, as it has always been held to imply, that the company can not turn the unpaid-up shares into stock, so as to exclude the right of making further calls. Therefore, the section must apply to the issued capital, and not merely to the nominal capital; and it has always been so treated, as far as I know.

saw.

There is the additional observation to be made that the subsequent acts of parliament, namely, the acts of 1867 and 1877, would have singularly little meaning if it were not so, for they contain most elaborate provisions as regards the mode of increasing the capital, and reducing the capital, and as regards the trading capital and the issued capital. The provisions of the section, I admit, are difficult to construe if you read them word by word, but I do not think they are so difficult to construe if you look at the meaning of the whole of the acts as to the formation of these companies. If they are to be taken to apply only to the amount of the nominal capital, I must say that the acts of 1867 and 1877 are the most extraordinary legislative productions I ever But if you read the section the other way, and say that it means that the conditions in the memorandum relate to the issued capital, then the subsequent acts are perfectly intelligible. Let us now look at the ninth section of the act of 1867: "Any company limited by shares may, by special resolution, so far modify"-what?-"the conditions contained in its memorandum of association, if authorized so to do by its regulations as originally framed or as altered by special resolution, as to reduce its capital." What capital? Does that mean nominal capital? It is plain that it means the trading capital. Therefore when you look at the ninth section it is clear that the legislature considered the twelfth section of the original act somehow or other prohibitive, and that a new act was required to authorize a company to reduce its capital. Then there are provisions which the legislature

considered necessary for the protection of creditors in case of a reduction of capital.

But it is said a surrender is no more a diminution of capital than is a forfeiture, and the creditors are not injured by a surrender. That, however, is not so. If the company could, either by taking a surrender or by a purchase of shares, actually diminish the capital, not in the shape of dealing with a solitary individual shareholder who can not pay, but to a greater extent, what would be the result? I am not now speaking of future creditors, who must be held to take with notice of what was on the register. What would be the result? Every creditor who could not enforce his demand would lose it. Suppose, for instance, the vendor, having sold the mine to the company, were to take a mortgage of it not to be called in for five years if the interest were duly paid, and the directors then found that they were carrying on business at a loss and could take a surrender of all the shares except seven, then the mortgagee-creditor would be actually without. remedy, because he could not apply to have the company wound up until the mortgage debt was due. That would not be until the end of five years, by which time all the shareholders would have been off as past shareholders for probably four years. So that it is not correct to say that in case of surrender the creditors are protected, because they may all lose all remedy whatsoever, unless indeed their money becomes payable within a twelve month after the transaction takes place.

It seems to me that when you look at what I may call the purview of the act, it can not be possible that the company can buy up its own shares in this way so as to destroy the shares in every sense and for every purpose and intent, except that they may, if they can, reissue or transfer the shares to new shareholders during the intervening period that the capital is diminished, if not absolutely extinguished. That being my view of the whole of the act, and I may say of the result of the decisions, which really have any bearing on the subject-matter I have to consider, I think the present transaction was a diminution of the capital of the company which is prohibited by the companies act, 1862, and the transaction is, therefore, void on that ground also.

The transfer being void, and, if I may say so, void at law, although that expression has no longer the meaning that it formerly had, the result is that Mr. Ward remains a contributory; and that is the only point I have now to decide.

[This decision of the master of rolls was appealed from and overruled, on the appeal. But the views of Jessel, M. R., of the general doctrine of the company's capacity to purchase its own shares, given here, were taken and applied in the later case of Trevor v. Whitworth, in the house of lords, L. R. 12 Appeal Cases, 409, holding that a limited "company has no power under the companies acts to purchase its own shares." See particularly the opinion of Lord Macnaghten, in Trevor v. Whitworth, L. R. 12 App. Cas. 432-438.]

Note: (1) An English company has no right to purchase its shares unless specially authorized: 1870, In re London, Hamburg, etc., Bank, L. R. 5 Ch. App. Cas. 444, 39 L. J. Ch. 598; 1870, In re United Service Co., L. R. 5